But not filing taxes might be akin to playing with fire. Here is everything you need to know about how to report capital gains and losses for cryptocurrency—and why you absolutely should.

When currency isn’t “currency”

Even though we call it a virtual “currency,” as of now it is considered “property” rather than “currency” under federal law. That means it is subject to capital gains tax like other forms of property, such as stocks, bonds, real estate and the like, rather than foreign exchange currency principles.

In many ways, that can make it easier to calculate, since most investors are familiar with common capital gains principles.

As a refresher, capital gains are incurred when you sell the property for more than you paid for it, and that is the underlying principle with cryptocurrency as well. For cryptocurrency, these events include:

Trading cryptocurrency

Spending cryptocurrency

Exchanging one token for another (because you are essentially selling the first one)

Converting to the U.S. or other currency (again, you are essentially selling it)

On the other hand, the following events need to be counted as ordinary income; in other words, they wouldn’t trigger a tax event that needs to be accounted for as capital gains taxes or losses:

Receiving payments in virtual currency

Air drops, which are considered ordinary income until they are sold or exchanged, in which case there would be a capital game

Mining

Initial coin offerings

Deciphering short-term vs. long-term implications

Just like stocks, you will categorize your cryptocurrency gains or losses as short-term or long-term when you file taxes. “Short-term” capital gains are those that are held less than a year and are taxed at your normal rate. “Long-term” capital gains are taxed at a reduced rate that fluctuates according to your tax bracket. Therefore, to minimize tax events, the best strategy is to buy and hold for more than a year.

But if you have suffered losses, again, those are treated as a stock: You can deduct the loss from your capital gains. Or if you had a particularly down year, and the losses exceed your gains, you can deduct additional losses up to $3,000 annually ($1,500 if you are married and file a separate return) and carry over the rest to your next tax return.

Since it’s almost impossible to know which coin was sold or exchanged in a specific event, most owners will use First In-First Out (FIFO) as the easiest accounting methodology to determine your cost basis, but you are free to use whichever one you prefer as long as you are consistent.

The best advice—especially since determining cost basis is particularly tricky with cryptocurrency—is to seek counsel from a CPA. The worst advice? To ignore your tax implications.

Yes, The Tax Man Cometh: Why You Shouldn’t Risk Fudging Your Taxes

It can be tempting to forgo reporting your cryptocurrency gains and losses—after all, no one is sending you a 1099 form that you have to account for to the government, and you are on your own to decipher your gains/losses and cost basis, which isn’t always simple. But choosing not to self-report is a bad idea.

Just, for instance, consider the successful suit the IRS brought against Coinbase, requiring it to turn over identifying records for all customers who had bought, sold, sent or received more than $20,000 through their accounts in a single year between 2013 and 2015. The Motley Fool reports that fewer than 1,000 tax filings in those years accounted for cryptocurrency capital gains, leaving a plethora of owners open to investigation.

That judgment makes it likely that the IRS will begin scrutinizing other exchanges and individual wallets to find tax scofflaws, and you don’t want to be one of them. That’s because you could face penalties, fines—and in extreme cases, even jail time if they find you have filed a false return.

The smart money is on paying what you owe now, so that amount doesn’t increase exponentially via fines, interest, and penalties in the event of an audit.